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News

Regulator misses the point

RO six times more effective than NFFO

27 January 2007

As the UK approaches the installation of its second gigawatt of wind power capacity, making it one of only six countries globally to have reached this level, BWEA examines the progress of the sector under the differing Government support mechanisms for renewables.

In the 1990’s, this was the Non-Fossil Fuel Obligation (NFFO), which awarded contracts for renewable generation in a competitive bidding process. This changed in April 2002 with the introduction of the Renewables Obligation (RO), which requires power suppliers to derive a specified an increasing proportion of their supply from renewable energy sources. Originally set at 3% in 2003, this now stands at 6.7% in 2006/7, rising incrementally to 10.4% by 2010 and 15.4% by 2015.

Many have criticised the RO as expensive, most recently the energy regulator Ofgem. BWEA is however firmly of the view that the RO is delivering. As a market based mechanism, the RO is specifically designed to be reflective of the supply and demand balance of renewable electricity – there is currently a shortage of projects and hence upward pressure on prices.

The solution is not to change the mechanism but address why this is the case namely planning consent delays and availability of grid connections.  If these regulatory tools were working effectively, then the renewables industry can deliver the government targets and in doing so optimise the delivery of renewables capacity under the RO.
 
The proposals from Ofgem appear to hark back to the old Non Fossil Fuel Obligation (NFFO) approach of the 1990’s which over a decade of first hand experience delivered only 500 MW of wind energy projects in 13 years. Nearly three times that amount has been commissioned under the RO which has not yet been in effect for five years, with considerably more consented and under construction. A NFFO-type mechanism has further complications as the competitive bidding process removes investor confidence within the industry and drives schemes to the windiest locations.  These sites are generally areas with the most sensitive landscape considerations and with the least ability to connect to the national grid.

Maria McCaffery, BWEA Chief Executive, said:

“The problem is not the RO mechanism, which is delivering many times the build rate ever achieved before.  The fact that delivery is still not enough and ROC prices are a little high is partly because Ofgem themselves have failed to prioritise issues of grid reinforcement and access which have slowed the ability of the industry to deliver.”

She continued:

“In suggesting changes to the RO we all need to be very careful about jumping to conclusions at a time when we urgently need stability in the market place – both to enable delivery of wind energy projects which are required to meet the Government’s 10% renewable energy target by 2010 but crucially to maintain investor confidence in a UK market which now only represents 5% of the global wind energy industry. Ofgem’s proposal to revert to an old market model is a step backwards at a crucial time, when Government and industry need to move forward together, to deliver in quantity under pressing time frames.”

BWEA holds firm that the primary issue for the future of the Renewables Obligation is to maintain the current level of support for onshore wind in order to meet short term targets, while increasing the level of support for offshore wind, wave and tidal technologies to put them in a position to take over the mantle over the next decade.

For comment and further information contact Alison Hill, Head of Communications, BWEA on 020 7689 1966 / 07956 859 749 / alison@renewable-uk.com

BWEA: Delivering UK wind, wave and tidal energy

Notes

Annual MW installed in the UK 1991-2006

MW submitted into planning, consented and decided, 2000-2006

For further information on the RO and ROC distribution, see BWEA's response to the Government consultation on the RO - Government sums don't add up on renewable energy.

BWEA is the trade and professional body for the UK wind and marine renewables industries. BWEA is at the forefront of the development of the UK wind, wave and tidal stream industries, promoting and protecting its members' interests to Government, business and the media. Wind energy has now started a major expansion in the UK and will be the single greatest contributor to the Government’s 10% 2010 renewable energy target and 20% 2020 renewable aspiration. Together, wind, wave and tidal power can supply 21% of our electricity by 2020, resulting in over £16bn of investment in UK plc. See www.bwea.com/energyreview